Hawaiian Electric Industries, Inc. Reports Second Quarter 2004 Earnings

Business Wire, July 19, 2004

HONOLULU -- Hawaiian Electric Industries, Inc. (NYSE:HE) today reported net income from continuing operations for the three months ended June 30, 2004, of $11.2 million, or 14 cents per share, compared with $25.8 million, or 34 cents per share, in the same quarter of 2003. For the six months ended June 30, 2004, income from continuing operations was $42.2 million or 54 cents per share, compared with $50.1 million or 67 cents per share in the same period last year. In June, the Company recognized a cumulative $24 million charge (30 cents per share) through March 31, 2004, to net income for an unfavorable tax ruling involving American Savings Bank's real estate investment trust (REIT) subsidiary. In addition, in the second quarter, the Company accrued $0.2 million in interest, net of taxes, related to the REIT tax issue and state bank franchise tax of $1.2 million. Management continues to believe that its tax position is proper and has appealed the ruling to the Hawaii State Supreme Court.

"Excluding the effects of the REIT tax adjustment through March 31, 2004, earnings for the quarter would have been $35.2 million or 44 cents per share--a solid 29% increase over the same quarter last year on a per share basis. This performance resulted primarily from broad-based strength in the Hawaii economy that had positive effects on HEI's electric utility and bank subsidiaries' operating results," said Robert F. Clarke, HEI chairman, president and chief executive officer.

Hawaiian Electric Company's net income for the second quarter was up 17% to $21.7 million compared with $18.6 million for the same quarter last year when the adverse effects of the Iraq war on tourism and increased retirement benefits expenses decreased earnings. Electric utility net income for the six months ended June 30, 2004, was $41.8 million compared with $36.2 million for the same period of 2003.

Kilowatthour sales were higher by 2.8% quarter-over-quarter. "Double-digit international and strong domestic visitor arrival growth rates in April and May and increased military activity contributed to increased commercial usage," said Clarke. "In addition, residential sales were up on all islands resulting from increased usage by existing customers and the effects of new home construction activity," Clarke added.

Further contributing to the increase in electric utility net income were a reduction in other operation costs principally due to a $2.3 million decrease in retirement benefits expenses compared with the second quarter of 2003 and a $0.5 million reduction in interest expenses and preferred securities distributions of trust subsidiaries related to the refinancing of higher-costing debt in the first half of 2004.

Bank net loss in the second quarter was $6.9 million compared to net income of $13.5 million in the same quarter last year. Bank net income for the six months ended June 30, 2004, was $9.0 million compared with $27.0 million in the same period last year. Bank results included a cumulative $24 million charge in June 2004 related to the previously reported unfavorable tax court ruling involving the bank's REIT subsidiary. Details of the REIT tax issue were fully disclosed in a separate filing with the Securities and Exchange Commission on Form 8-K on June 8, 2004. Excluding the charge, bank net income would have been $17.0 million for the second quarter and $32.9 million for the first six months of 2004.

"Strong demand for homes and limited supply continued to add strength to the Hawaii real estate market and further improve asset quality at the bank," said Clarke. Delinquent and nonaccrual loans as a percent of total loans at June 30, 2004, continued to trend downward to 0.4%, a level well below historical norms. These factors combined with recoveries on loans previously charged off resulted in the reversal of $3.0 million of the bank's allowance for loan losses in the second quarter. The bank remained adequately reserved against possible loan losses with $38.8 million reserved at June 30, 2004.

Net interest income increased $1.2 million quarter-over-quarter. The interest rate spread increased to 3.08% for the second quarter compared with 3.02% for the second quarter of 2003. The increase in the interest rate spread quarter-over-quarter was primarily due to a change in the mix of the bank's funding base out of higher-costing borrowings and into low-costing core deposits, partially offset by a decrease in the yield on loans.

The holding and other companies' net expenses were $3.5 million in the second quarter of 2004 versus $6.3 million in same quarter of 2003. The holding and other companies' net expenses for the six months ended June 30, 2004, were $8.6 million compared with $13.1 million for the same period of 2003. Second quarter net expenses decreased compared with the same quarter of 2003 due in part to the impact of lower interest rates and lower legal expenses.

HEI and its subsidiaries are a critical part of Hawaii's economy. HEI supplies power to over 400,000 customers or 93% of the Hawaii market through its electric utilities and provides a wide array of banking and other financial services to consumers and businesses through the state's third largest financial institution.